Will People Pay For Content Online?

from the false-hopes dept

One fascinating thing to watch is how people in certain content professions continue to hold out hope that there's some way that maybe, possibly, really people will suddenly see the light and magically start "paying for content online." Now, obviously, many people do pay for content online, but it's a very difficult market position to sustain due to basic economic forces, unless you're doing something special, and have figured out a way to effectively bundle that content with some sort of real and valuable scarcity -- i.e., a true reason to buy.

But, figuring out those business models aren't easy, and for those who grew up in a world of artificial scarcity, there's always this vague hope that, magically, people will start paying again. Believers in this fantasy were pretty happy to gloat and point us to a recent report from Nielsen, concerning some survey data on whether or not people would pay for content. The suggestion passed along was that this shows that we're crazy for questioning whether or not people will actually pay for content online, as seen in the following chart, released by Nielsen plotting the data:

Of course, you can read this chart in a variety of different ways -- and I found it interesting that the data is not actually to scale, since it cut off at the 60% mark. To put this into a bit more perspective, it's a bit more helpful to show what the data actually say on a full 100% scale, so I did a quick & dirty version of that myself to help out:

Ah, amazing what a different scale will do, as the latter image makes the numbers (accurately) look a little less impressive than the image released by Nielsen.

But, even beyond that, these numbers don't actually look all that good for the folks who claim that there's some way to suddenly get people to start paying for this stuff, for a whole variety of reasons. First, this is survey data, which is notoriously bad at getting people to accurately predict if they would pay for something. You can lop off a big percentage of people who say they would pay, because when asked, lots of people who would never actually pay for something will say they will pay. I won't even bother to estimate that amount, but I would argue it's a significant chunk of those orange bars.

However, even if we grant the premise that these people potentially would pay, it still doesn't support the "if we just did x, they'll pay" camp (where x is anything from "shut down The Pirate Bay" to "kicked file sharers off the internet" to "passed three strikes legislation" to "increased enforcement" to "beefed up copyright laws" etc.). And the reason for that is when you look at how many people are actually paying. That is, it's really those tiny blue percentages that matter here. And those are tiny across the board -- and the reason isn't copyright infringement or unauthorized file access, but the fact that the producers of the content haven't figured out how to give most people a true reason to buy. They're used to a world where you didn't need to figure out a business model, but artificial scarcities and a small number of gatekeepers were able to make it so people had little choice.

But these days, with widespread abundance in content -- which is growing every day -- the era of artificial scarcities is rapidly ending, and anyone who wants to build a 21st century business model needs to start looking for real scarcities that offer real value, not artificial scarcities that seek to limit value while boosting price. So, yes, there's some interesting data here, but it's not the savior of those who think there's a business model in selling content directly. It really says the exact opposite.

Will pay does not equal Have paid

And just because I say I will pay doesn't mean I am going to go through with it or that I HAVE paid. Its just saying I might some day pay for this content which is all great and wonderful. It doesn't matter how you spin the chart through, only a MAX of 15% of people surveyed have ACTUALLY shelled out money, that's not a lot. Most of the time its less than 10% though which is even worse. But alas people who attempt to turn infinite to finite and sell it will always think that just because I say I will pay for something means I am going to go through with it.

Re: Will pay does not equal Have paid

Kudos!

Just had to say that it is awesome that you "fixed" their chart. You know what they say, figures don't lie but liars figure.

I would say that the blue bars are the real percentage. If people "would" pay, why aren't they now? That is the question. To me, the answer is price. I would gladly buy MP3s if they were $0.50 or less. Probably much less. Same with movies, though I would pay more than $0.50 for a movie.

Even without the revised graph....

...any genius should notice instantly less than 20% of consumers are actually buying. That should be the eye opener right there.

But the biggest thing I take away from the graph is those less than 20% paying more for their product because the over 80% aren't paying.

Otherwise, there's nothing on this planet that's explaining a song at $1.30... EACH.

No matter, I guess. This data will simply be ignored rather than a possible model to try something new.

Back when the internet first hit the scene and started gaining momentum, remember how many sites offered a "premium" version? Buy a "subscription" and ads and annoyances disappeared. How long did those survive, you ask? About as long as it took someone else to make a competing site, at no cost to the user, to drive away the competition.

Digital = more people who can't adapt standing in the unemployment lines because they based their income on the CPM ad model. Idiots.

Re: Even without the revised graph....

The $1.30 per song is for the convenience and reliable quality of iTunes. Apple is aiming at a price which maximizes their profit while keeping (most) people from feeling ripped off.

If you know exactly what artist or song you're looking for, it's easy enough to use the file-sharing service of your choice to grab it, but you may have to try a couple of times to get a file that doesn't suffer from slight fidelity loss or whatever. iTunes is a little easier; my fiance prefers it because it's more user-friendly and looks nicer than Limewire, and she doesn't miss the buck per song.

So that's the deal. I confidently expect the cost of a downloaded song to go down over the next few decades, but for now the market supports a $1.30 price point.

I think the chart would be better served with a third color representing the remaining people who, even in a survey, admit that they will not pay.

I'd also like to see the questions used in the survey - after all, I have (at one point or another) paid for at least a single item from most of the categories. However, the vast majority of the times I find other means to access the content that don't involve payment.

That is, the question is likely predicated to include everyone who's ever paid (even once) for a digital product in the blue, inflating the numbers further than they are in reality.

As I've said before, part of the problem is actually making decent options available to people. If you don't happen to be located on the continental US, it's surprising how few legal options can be available. I'm literally not allowed to pay for digital content thanks to the industry's self-imposed restrictions.

I'd happily pay for more music online, but it's way too expensive (often more than a CD if you look at albums) and most of the retailers who are able to undercut iTunes are not allowed to sell to me due to regional restrictions (e.g. Amazon; also at the time of writing, I'm only allowed to buy 4 of AmieStreet's top 25). I would also pay for a last.fm subscription if they were allowed to let me play music through the XBox 360 dashboard app but, for whatever retarded reason, they're only allowed to offer this to the US and UK despite the facility being available for PC and iPhone app streaming internationally.

I'd happily pay for more XBox games online, but many of the games for the original XBox are region-locked away from me, and the 360 games are overpriced (£20 for games that are often sold for less than £10 at online retailers). Live Arcade is better, but even then I'm not allowed to buy some games due to regional restrictions (e.g. Call Of Duty Classic).

I'd happily pay for a streaming subscription service a la Netflix, but no such option exists for me (again, due to regional restrictions). The cost of movie downloads via iTunes is, frankly ridiculous (often more than a DVD), and I'm not aware of any reasonably comprehensive alternative that's available to me.

As for the other options mentioned, I doubt I'd ever pay for any of those directly, although I have been known to donate money to my favourite podcasts. I doubt that I'd ever pay for amateur video, magazines, news or radio, and if Facebook decided to charge, they'd lose me instantly.

actually it's probably accurate

if you look at "will pay" that is quite accurately those that are paying now and will pay in the future.

Suddenly, the chart looks incredibly accurate - about 10% will pay.

Man, Nielsen potentially snuck in something creative with that- not only that you have zero guarantee that people actually will pay for the product, but that those that are already paying - well, that's about it.

Re: Kudos!

You know what they say, figures don't lie but liars figure.

Exactly. This reminders me of those asinine "knows someone who" study results. As in, "75% percent of high school students said they know someone who was sexually abused" or "90% of college students said they know someone who illegaly downloads music." Well, if you have five people who know each other and only one of them does the thing being studied, then 80% knows someone who is doing the thing. You can't factor how how many people know each other, so this kind of stat is worthless. This kind of study result, messing with the scale, and all of the other "liars figure" tricks should be taught in an Anti-Statistics class.

Newspapers

If I look at my kitchen table it is always piled with the last few days worth of newspapers of which I get three daily. I would love the idea of replacing the paper versions with an electronic version and eliminate our recycling headache. The only way that will make sense is if the subscription prices are competitive over the hard product, even with the added features electronics could offer.
When looking at the additional features like videos a lot of media is already offered online either as an incentive to go to the website or it's available for free online. Good options are really there to create loyalty and value. If the value is truly high enough than the price will naturally go up.

Re: Even without the revised graph....

That's what I thought too. The orange bar means nothing, it's a fantasy figure. The blue bar speaks the truth, and the truth is that few people are buying content online. If they lowered the prices to meet the supply, they'd see a lot more people buying and probably even make a lot more money. At the very least, they'd still be making the same amount of money but selling a lot more (ie. the blue bar would go up, but the profits would be the same).

I'm curious what they were asked exactly too. I mean, I'd buy content online too, so I guess I'd be in the orange bar. But I won't buy it at the current prices and definitely not through the most popular channels. For example, I'll never use iTunes since I think it's a terrible piece of software and I lack both an Apple device and a compatible operating system; it's not JUST the price keeping me from using their service, but the price DOES keep me from even considering it.

As for the paying to remove ads thing, I still see that from time to time. It's pretty dumb to base you ENTIRE model on that, given the ease of competing (as you pointed out), but also given niceties like AdBlock/AdThward, which makes removing ads trivial and free for the user. It's a bad reason to buy.

CwF+RtB: Going beyond music

I don't know how many gamers might frequent this site, but I have to wonder what people thought of the "Cerberus Network" that came out with Mass Effect 2. They call it their way of "rewarding" their "loyal" customers, by creating artificial scarcity of another infinite good. The same day the ME2 DLC became available, it was also available on BitTorrent. This included the preorder and exclusive items available from specific shops. So their so-called solution to piracy was bypassed and people got the content without the restrictions forced upon paying customers.

Now, I'm well aware of the CwF+RtB formula. I have to wonder though, how this can be applied to the games industry being that games are a cross-bred form of existing art disciplines? One thing that comes to my mind is custom add-on content. Can this be made into a sustainable and competitive business model? I ask because I'm looking to become a game developer myself one day and I want to be able to bring a workable solution to the industry. DRM doesn't work obviously nor does activation keys, disc checking, and online authentication. So what can the game developer offer that will give the customer a reason to buy games they want? What would entice you to buy a game?

Sturgeon's Law!

90% of all 'content' people come across is crud, and that's not surprising given it's usually created precisely to appeal to the largest number of people, i.e. one of umpteen lowest common denominator aesthetics the traditional publishers fancy appealing to.

So, really, that leaves us with only 10% of 'content' that people might even think about liking, let alone consider paying for.

Out of a potential audience of a billion an artist might be happy to reach a subset of a million, which is only going to happen when they produce a particularly good work of art (virally promoted). This might then attract a thousand fans who think the artist is worth paying to produce more.

So, I think the figures in the chart are extremely promising - for artists, but not publishers.

As is happening today and as will increasingly be the case in the future, all published works belong to the public (as was the case prior to copyright). Therefore the only way artists are going to be funded is from people who like what they've already got, and want more. In other words everything will appear to be free, but that's because most people will pay modestly to those tiny few artists they particularly like. Good artists will thus end up well paid.

But how much would they pay?

The big unanswered question is "How much would they pay?" And a second question is, "Under what terms?" As often noted before, content providers often overvalue their products, and current management practices often try to impose very restrictive terms and a lot of fine print.

On top of that, too many online services have turned into scams eventually, or provided really bad customer service. The last time I signed up for a paid online service they renewed me twice despite multiple efforts on my part to cancel. That alone makes me hesitant to sign up for any type of online subscription service.

If businesses expect to get people to subscribe to services, the business community should get a law passed guaranteeing online rights. It should include the right to cancel online (no need to talk to a sales rep who will try to talk you out of canceling, and then hit the "renew" button instead of the "cancel" button anyway) as well as severe penalties for failure to do so. In fact, automatic renewals should be prohibited; there should be at least an annual "opt in" requirement.

But what makes the oranges (and "others") tick?

The problem with the "if we just did X" crowd is that they don't actually estimate what percentage of the currently non-paying crowd (orange and blank/white) is actually avoiding paying due to piracy/file sharing/free access. It is that percentage that they have a hope of converting to blue with their push of "X".

The other group, which I suspect is MUCH LARGER, is where the advocates actually have to work to convert. It is that group that is not at all being addressed yet offers the greatest opportunity.

Re: Re: Re: Even without the revised graph....

I agree. 1.30$ is a number they pulled out of their arse. since the content is available in infinite quantities, whether they sell 2 or 2 million copies of the song the only thing that changes for them is how much they're making. the content will still be there in limitless quantities no matter the price.

What will it take?

The biggest problem with these numbers is that a lot of the potential customers might have demands that content producers would never be willing to live with. The issues of platform independence and DRM would be high on that list.

Re: What will it take?

And don't forget price.

I suspect the ~40% of people represented as "will never buy online" are probably the people who expect their demands will never be met. The ~50% of the "might buy online" crowd are at least hopeful they'll one day get what they are looking for.

1st poster nails it

hurry your losing money GO GO GO.....away
and when its 17.07 for pop n popcorn at a movie theatre once you been hosed this bad i do not have any more money left

so you see they are slowly doign themsleves out of business
just like in 2005 at future shop i saw that brand new hip hop album go for what was it 5$ ...no....ten bucks ...no
15$ no...20$ wow you say expensive...nope
25$......nope
THAT'S right folks the grand cheap affordable price of 29.95
30$ for music OMFG i said
you wonder why people download this is WHY p2p exploded
if they hadn't of got greedy like we all know they are 90% of the pirate bay users would never have happened.
THEY HAVE but themselves to blame here 100%
so whats the response
LETS SUE PEOPLE who couldn't afford a 29.95 album
HAHAHAHA

now onto tv it goes as they have utterly lost at music
and ill continue to use my computer as a vcr and when you charge WITH COMMERCIALS 125$ a month for tv what does it sound like again?
and i have a directory called

PENDING LIST
where inside is al the stuff i downloaded that maybe in 40 years ill pay for.....JUST like the cria said

Another way to look at it.

give me ten grand and ill make you in a year a wicked game of any genre

of course you will have to buy me also all the said sofware legally at there INFLATED INSANE prices
think autocad at 7000-8000$ and you see why people are being gouged at game costs

when you bring in actors form hollywood you do not need
when you bring in top name musicians you do not need

you gt the idea.
goto a local bar pick up some lads and offer em a few bucks , you'd be surprised what they can do for you.
then offer them 1% each fo the profits
do same with coding
you do not need a ubisoft engineering lab with all these white coated dweebs runnign aorund

We've established what you are, now we are just negotiating price

1. What people who have already paid are currently doing? I've paid in the past, found I could get a similar alternative without paying, and stopped paying.

2. For the people willing to pay, how much are they willing to pay. Give me my Arizona Wildcats basketball video online for three bucks a game and I'm there. Make it $14.95 and I'm not. So, yeah, I'm willing to pay. We just haven't made a market yet.

Re: Re: Even without the revised graph....

Actually, $1.29 is the price point the record labels want for hot new releases and pushed Apple into a corner for it. Apple wants $.99 for everything ... I'm sure the vast majority of music purchasers would prefer way less.

Re: Re: Re: Even without the revised graph....

For me, the price per song is closer to $.25 to get me to download legit over P2P. And even then, I would expect a minimum level of quality with no artifacts or pops and well crafted IDv3 tags with embedded cover art.

Re: give me ten grand and ill make you in a year a wicked game of any genre

are you serious? is anyone else interested to see how this lone guy (or whatever student bodies he can drag up for 'pizza' on friday nights) can beat a Halo or WOW with just $10 grand? Personally, it sounds delusional given the current appetite the public has for complex 3d effects, physics, story arc, etc., but I'd be interested to see your business plan before I'd give you one cent, if I were any kind of reasonable investor. Besides, I'd tell you to go buy one of the available game engines on the market for a few hundred bucks and come back to me with a playable demo.

Re: Re: give me ten grand and ill make you in a year a wicked game of any genre

OK, lets see..

How many movies were released last year?
HOW many were adverted??
HOW many did you see??
HOW many did you go to a THEATER and watch? 1?, 2?, if you saw +10, next time send me the money you spent, as I could be rich.

And the next question would be??
you saw 100 movies last year and went to the theater 10 times??

Out of 500? movies released/at theaters/direct to DVD/all the rest...
how many were worth watching??
How many did you miss, that you wanted to see??

NOW compare Netflicks, and all the shows they had/and were viewed..
NOW try to tell the Movie industry HOW to do DIGITAL distribution, and CHARGE

The Blue Bars

From what I know of this topic (which is plenty), I would agree that the blue bars tell the truth. People who pay are the people who pay... and those that don't - well, they don't. Would I pay if something I wanted and used was free? Most people would agree that a person would have to be a raving lunatic to pay for something that's free. So, will people pay for content? If they can't easily get it any other way, and they want it, then they will pay. The more they want it, the harder they will look for it for free and the more likely they will be to pay for it if they can't find it for free. If one wonderful newspaper requires a pay-for-content, and one mediocre newspaper doesn't, guess which paper will get an increase in circulation, and which one will lose subscribers? It's a no-brainer. So will pay-for-content work? It depends on whether the content is valuable and not free somewhere else... so obviously the answer is "no" (at least "no, not the way things are right now"). Duh!

Sure...

I'm willing to pay for content [that's] online--content that I want, that is; which doesn't include music [from any RIAA label--they're never getting a penny from me again] or anything from anyone who treats their customers like dirt. Books and movies [for now]... that's about it. Obviously, the price has to be right. Obviously, I won't pay for anything that includes ads/commercials. (Here I am--holding my breath... not.)

Re: Re: 1st poster nails it

Re: Re: Re: Even without the revised graph....

Lets see, 250 billion people in this world as a potential customer times $1.30 each for one song equals over 250 billion for that one song.

This don't even take into account when someone has to buy it again because he lost it, hard drive crash, change in format, etc...
There is no way one song is any where near wroth that much money.

You can turn on any radio and hear it for free and yes they pay also just to play it. So most will just record it off the radio or download a rip of it instead of paying.

This is nothing new about this. In the old days we had to buy albums for about $7.00 or more. Usually for just one or two good songs on it. We were not happy then either and many would record the song off the radio, or the whole album on the 7th day shows. Back then no one complained about the cheap skates.

If they have content that people want they will sell more and make more even at the lower price.

I paid to subscribe to an online magazine once. While I liked the magazine enough to pay for it, I didn't like the fact that their website was kludgy, the time between new issues grew longer and longer and the content thinned out each issue. I let my subscription lapse after a year or so and the magazine fizzled out soon after that.

0,1 $?? C'mon

Come on guys, seriously? I'd rather give it for free then. How many downloads are needed to earn anything at all? That might work for real popular acts, but if you are doing anything out of the mainstream? (free jazz, improvised music, contemporary stuff etc etc). How much is a beer where you all are? Compare that to 1$/song. If the music is not worth couple of beers (3 beers/album here) then good night.
Best

Of course monopolies lead to higher prices, but asking yourself, "if we get the government to create laws that allow us to monopolize everything, will this enable us to increase prices" just demonstrates a complete disregard for morality. These people belong in jail and the public should be OUTRAGED at what everything outside the Internet has turned into.

I want the FCC disbarred (and not replaced), I want IP laws vastly alleviated, and I want the government to open up cableco/telco infrastructure to free competition and to allow anyone to either build new infrastructure or to use existing infrastructure, both for the Internet and cable.

Re: Re: Re: Re: Even without the revised graph....

It also depends on *how much* of that "price per song" actually goes to somebody deserving of it:

In terms of any label affiliated with the RIAA or any of the other international equivalents (BREIN, IFPI, etc.), that means: virtually none of it. Same with the "collection" agencies like Soundexchange, etc.

(Personally, I've *always* been an inveterate scumbag, in that I grew up using one of copyright's biggest "loopholes" -- the first-sale doctrine. I get good prices (1000 33 rpm vinyl/5 bucks), semi-random box of CD's/tapes = 1 dollar, etc.). The best part is that the multinational corporate shit-stains behind the RIAA's reign of terror didn't make a *dime* off me.
Plus, I've found huge swaths of stuff that I would have never found, otherwise. I've never been the kind of idiotic lemming to just placidly buy something because "everybody else is doing it".

I'm also smart enough to know how to get a good deal out of the aforementioned stupid lemmings who think they're being "cutting edge" by dumping all their vinyl because the format itself is supposedly "obsolete". (Hint: unless the stuff has been fairly-extensively "remastered", even the digitized versions you get on CD's are usually only at "tape quality", if that makes any sense.

Even if they *do* manage to somehow ram their draconian bullshit down the collective cultural throat, I still have something like 20,000 albums, tapes, reels, etc. to dip into whenever I get bored.

Re: Re: Re: Re: Re: Even without the revised graph....

It also depends on *how much* of that "price per song" actually goes to somebody deserving of it.

This is a big problem for me as well. The biggest impact that the proliferation of technology is having on most entertainment related industries, is reducing the value that the publisher brings to the process. The middlemen are being steadily cut out. However, most business models haven't changed, so you've still got the publishing and recording and content delivery people getting more of every dollar spent than the actual content creator does.
I don't buy content off of iTunes, because I don't think Apple brings enough value to the content to deserve my dollars. I buy lots of content used (books, CDs, movies, video games). I will rarely, but occasionally, buy books new if I really like the author or if it's highly anticipated.